 Unit 10 AP Micro - Custom Scholars
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# Unit 10 AP Micro

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Explicit Cost
a cost that involves actually laying out money
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Implicit Cost
does not require an outlay of money... it is measured by the value of benefits that are forgone
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Accounting Profit
the business's total revenue minus the explicit cost and depreciation
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Economic Profit
the business's total revenue minus the opportunity cost of its resources... It is usually less than the accounting profit
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Implicit Cost of Capital
the opportunity cost of the capital used by a business - the income the owner could have realized from that capital if it had been used in its next best alternative way
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Normal Profit
an economic profit equal to zero... It is an economic profit just high enough to keep a firm engaged in its current activity
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Principle of Marginal Analysis
every activity should continue until the marginal benefit equals the marginal cost
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Marginal Revenue
the change in total revenue generated by an additional unit of output... MR = (the change in TR / the change in Q)
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Optimal Output Rule
says that profit is maximize by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost
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Marginal Cost Curve
shows how the cost of producing one more unit depends on the quantity that has already been produced
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Marginal Revenue Curve
shows how marginal revenue varies as output varies
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Production Function
the relationship between the quantity of inputs a firm uses and the quantity of output it produces
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Fixed Input
an input whose quantity is fixed for a period of time and cannot be varied
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Variable Input
an input whose quantity the firm can vary at any time
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Long Run
the time period in which all inputs can be varied
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Short Run
the time period in which all inputs can be varied
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Total Product Curve
shows how the quantity of output depends on the quantity of the variable input for a given quantity of the fixed input
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Marginal Product
the additional quantity of output produced by using one more unit of that input
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Diminishing Returns to an Input
when an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input
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Fixed Cost

a cost that does not depend on the quantity of output produced

It is the cost of the fixed input

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Variable Cost
a cost that depends on the quantity of output produced It is the cost of the variable input
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Total Cost
the sum of the fixed cost and the variable cost of producing that quantity of output
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Total Cost Curve
shows how total cost depends on the quantity of output
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Average Total Cost (ATC) or Average Cost
the total cost divided by the quantity of output produced
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U-Shaped Average Total Cost Curve
falls at low levels of output and then rises at higher levels
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Average Fixed Cost
the fixed cost per unit of output
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Average Variable Cost
the variable cost per unit of output
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Minimum-Cost Output
the quantity of output at which the average total cost is lowest - it corresponds to the bottom of the U-shaped average total cost curve
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Average Product
the total product divided by the quantity of the input
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Average Product Curve
shows the relationship between the average product and the quantity of the input
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Long-Run Average Total Cost Curve
shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output
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Economies of Scale
when long-run average total cost declines as output increases
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Increasing Returns to Scale
when output increases more than in proportion to an increase in all inputs
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Minimum Efficient Scale
the smallest quantity at which a firm's long-run average total cost is minimized
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Diseconomies of Scale
when long-run average total cost increases as output increases
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Decreasing Returns to Scale
when output increases less than in proportion to an increase in all inputs
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Constant Returns to Scale
when output increases directly in proportion to an increase in all inputs
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Sunk Cost
a cost that has already been incurred and is nonrecoverable
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Price-Taking Firm
a firm whose actions have no effect on the market price of the good or service it sells
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Price-Taking Consumer
a consumer whose actions have no effect on the market price of the good or service he or she buys
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Perfectly Competitive Market
a market in which all market participants are price-takers Both consumers and producers are price-takers
question
Perfectly Competitive Industry

an industry in which firms are price-takers.

In order for an industry to be perfectly competitive, it must… contain many firms (none of whom have a large market share) and have consumers regard the products of all firms as equivalent

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Market Share
the fraction of the total industry output accounted for by that firm's output
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Standardized Product or Commodity
when consumers regard the products of different firms as the same good
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Free Entry and Exit

when new firms can easily enter into the industry and existing firms can easily leave the industry.

It is not strictly necessary for perfect competition… however, it ensures that the number of firms in an industry can adjust to changing market conditions

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Monopolist
the only producer of a good that has no close substitutes
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Monopoly
an industry controlled by a monopolist. To earn economic profits, a monopolist must be protected by a Barrier to Entry
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Barrier to Entry
something that prevents other firms from entering the industry
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Natural Monopoly
exists when economies of scale provide a large cost advantage to a single firm that produces all of an industry's output. Its defining characteristic is that its minimum efficient scale is so large that the monopoly possess economies of scale over the range of output that is relevant for the industry
question
Patient
gives an inventor a temporary monopoly in the use or sale of an invention
question
gives the copyright holder for a literary or artistic work the sole right to profit from that word for a specified period of time
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Oligopoly
an industry with only a small number of firms
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Oligopolist
a producer in an Oligopoly
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Imperfect Competition
when no one firm has a monopoly, but producers nonetheless realize that they can affect market prices
question
Concentration Ratios
measures the percentage of industry sales accounted for by the "X" largest firms
question
Herfindahl-Hirschman Index (HHI)
the square of each firm's share of market sales summed over the industry
question
Monopolistic Competition
a market structure in which there are many competing firms in an industry, each firm sells a differentiated product, and there is free entry into and exit from the industry in the long run
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question
Explicit Cost
a cost that involves actually laying out money
question
Implicit Cost
does not require an outlay of money... it is measured by the value of benefits that are forgone
question
Accounting Profit
the business's total revenue minus the explicit cost and depreciation
question
Economic Profit
the business's total revenue minus the opportunity cost of its resources... It is usually less than the accounting profit
question
Implicit Cost of Capital
the opportunity cost of the capital used by a business - the income the owner could have realized from that capital if it had been used in its next best alternative way
question
Normal Profit
an economic profit equal to zero... It is an economic profit just high enough to keep a firm engaged in its current activity
question
Principle of Marginal Analysis
every activity should continue until the marginal benefit equals the marginal cost
question
Marginal Revenue
the change in total revenue generated by an additional unit of output... MR = (the change in TR / the change in Q)
question
Optimal Output Rule
says that profit is maximize by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost
question
Marginal Cost Curve
shows how the cost of producing one more unit depends on the quantity that has already been produced
question
Marginal Revenue Curve
shows how marginal revenue varies as output varies
question
Production Function
the relationship between the quantity of inputs a firm uses and the quantity of output it produces
question
Fixed Input
an input whose quantity is fixed for a period of time and cannot be varied
question
Variable Input
an input whose quantity the firm can vary at any time
question
Long Run
the time period in which all inputs can be varied
question
Short Run
the time period in which all inputs can be varied
question
Total Product Curve
shows how the quantity of output depends on the quantity of the variable input for a given quantity of the fixed input
question
Marginal Product
the additional quantity of output produced by using one more unit of that input
question
Diminishing Returns to an Input
when an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input
question
Fixed Cost

a cost that does not depend on the quantity of output produced

It is the cost of the fixed input

question
Variable Cost
a cost that depends on the quantity of output produced It is the cost of the variable input
question
Total Cost
the sum of the fixed cost and the variable cost of producing that quantity of output
question
Total Cost Curve
shows how total cost depends on the quantity of output
question
Average Total Cost (ATC) or Average Cost
the total cost divided by the quantity of output produced
question
U-Shaped Average Total Cost Curve
falls at low levels of output and then rises at higher levels
question
Average Fixed Cost
the fixed cost per unit of output
question
Average Variable Cost
the variable cost per unit of output
question
Minimum-Cost Output
the quantity of output at which the average total cost is lowest - it corresponds to the bottom of the U-shaped average total cost curve
question
Average Product
the total product divided by the quantity of the input
question
Average Product Curve
shows the relationship between the average product and the quantity of the input
question
Long-Run Average Total Cost Curve
shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output
question
Economies of Scale
when long-run average total cost declines as output increases
question
Increasing Returns to Scale
when output increases more than in proportion to an increase in all inputs
question
Minimum Efficient Scale
the smallest quantity at which a firm's long-run average total cost is minimized
question
Diseconomies of Scale
when long-run average total cost increases as output increases
question
Decreasing Returns to Scale
when output increases less than in proportion to an increase in all inputs
question
Constant Returns to Scale
when output increases directly in proportion to an increase in all inputs
question
Sunk Cost
a cost that has already been incurred and is nonrecoverable
question
Price-Taking Firm
a firm whose actions have no effect on the market price of the good or service it sells
question
Price-Taking Consumer
a consumer whose actions have no effect on the market price of the good or service he or she buys
question
Perfectly Competitive Market
a market in which all market participants are price-takers Both consumers and producers are price-takers
question
Perfectly Competitive Industry

an industry in which firms are price-takers.

In order for an industry to be perfectly competitive, it must… contain many firms (none of whom have a large market share) and have consumers regard the products of all firms as equivalent

question
Market Share
the fraction of the total industry output accounted for by that firm's output
question
Standardized Product or Commodity
when consumers regard the products of different firms as the same good
question
Free Entry and Exit

when new firms can easily enter into the industry and existing firms can easily leave the industry.

It is not strictly necessary for perfect competition… however, it ensures that the number of firms in an industry can adjust to changing market conditions

question
Monopolist
the only producer of a good that has no close substitutes
question
Monopoly
an industry controlled by a monopolist. To earn economic profits, a monopolist must be protected by a Barrier to Entry
question
Barrier to Entry
something that prevents other firms from entering the industry
question
Natural Monopoly
exists when economies of scale provide a large cost advantage to a single firm that produces all of an industry's output. Its defining characteristic is that its minimum efficient scale is so large that the monopoly possess economies of scale over the range of output that is relevant for the industry
question
Patient
gives an inventor a temporary monopoly in the use or sale of an invention
question
gives the copyright holder for a literary or artistic work the sole right to profit from that word for a specified period of time
question
Oligopoly
an industry with only a small number of firms
question
Oligopolist
a producer in an Oligopoly
question
Imperfect Competition
when no one firm has a monopoly, but producers nonetheless realize that they can affect market prices
question
Concentration Ratios
measures the percentage of industry sales accounted for by the "X" largest firms
question
Herfindahl-Hirschman Index (HHI)
the square of each firm's share of market sales summed over the industry
question
Monopolistic Competition
a market structure in which there are many competing firms in an industry, each firm sells a differentiated product, and there is free entry into and exit from the industry in the long run

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